Factors influencing supply curve, Managerial Economics

Factors influencing Supply Curve

State of technology

There is a direct relationship between supply and technology. Improved technology results in more supply as with technology there is mechanisation.

Natural events

Natural events like weather, pests, floods, etc also affect supply. These affect particularly the supply of agricultural products. If weather conditions are favourable, the supply of agricultural products will increase. Conversely, if weather conditions are unfavourable the supply of such products will fall.

Time

In the long run (with time), the supply of most products will increase with capital accumulation, technical progress and population growth so long as the last one takes place in step with the first two. This reflects economic growth.

Supply of Inputs

Changes in supply of inputs will affect the quantity supplied; if this falls, less shall be supplied and vice versa.

Changes in the supply of the product with which the product in question is in joint supply e.g. hides and skins.

Taxes and subsidies

The imposition of a tax on a commodity by the government is equivalent to increasing the costs of production to the producer because the tax "eats" into the firm's profits. Hence taxes tend to discourage production and hence reduce supply. Conversely, the granting of a subsidy is equivalent to covering the costs of production. Hence subsidies tend to encourage production and increase supply.